Washington, DC : Yesterday, the Executive Board of the International Monetary Fund (IMF) reviewed the resource adequacy of the Poverty Reduction and Growth Trust (PRGT), Resilience and Sustainability Trust (RST), and Debt Relief Trusts including the Catastrophe Containment and Relief Trust (CCRT). The PRGT is the Fund's main vehicle for providing concessional loans (currently at zero interest rates) to low-income countries (LICs). The RST delivers affordable long-term financing to low-income and vulnerable middle-income countries, as well as small states, to support reforms to reduce risks to prospective balance of payments stability from climate change and pandemics. The CCRT provides grants for debt relief for the poorest and most vulnerable LICs hit by catastrophic natural disasters or public health disasters, disbursing SDR 690 million across 31 countries during the pandemic, which left its cash balance almost depleted.
PRGT finances were found to be under strain owing to substantially stronger demand for PRGT loans and sharply higher interest rates than previously envisaged; since the pandemic, the IMF has supported more than 50 low-income countries with over SDR 17 billion (about $24 billion) in interest-free loans. The PRGT faces a shortfall of SDR 1.2 billion (about $1.6 billion) in pledges for subsidy resources and SDR 3.5 billion (about $4.7 billion) for loan resources to complete the first stage of the 2021 funding strategy. In these circumstances, a multi-pronged strategy is proposed to make the PRGT whole through a concerted push to mobilize broad-based contributions to address gaps in subsidy and loan resources in the near-term, coupled with further steps during the 2024/25 comprehensive PRGT review to put the PRGT on a sustainable footing to deliver sufficient support to LICs in the long-term.
In relation to the recently established RST, the review highlighted strong and frontloaded demand for arrangements under the Resilience and Sustainability Facility (RSF). To date, five RSF arrangements have been approved since RST operationalization on October 12, 2022, and the pipeline of potential requests is building up quickly. On the RST resource side, pledges amount to 76 percent of the loan resource target, leaving a shortfall of about SDR 6.5 billion (about $8.8 billion) in loan resources relative to the original fundraising target. In view of rapid increases in the SDR interest rate, the implications of adopting an interest rate cap at 2¼ percent for Group A countries (PRGT-eligible countries that are not required to blend their IMF financing with the General Resources Account, GRA) are also examined, finding that, even with a cap in place, RST reserve buildup would remain adequate in most scenarios.
